What is an escrow account on a mortgage in Wisconsin?
Rob Miller explains how mortgage escrow accounts work in Wisconsin — what's collected, why lenders require them, and how your escrow payment is calculated.
Rob Miller, Branch Manager at MadCity Home Loans, explains escrow accounts — one of the most misunderstood parts of a monthly mortgage payment.
What is an escrow account on a mortgage?
An escrow account (also called an "impound account") is a separate account that your mortgage servicer manages on your behalf to collect and pay your property taxes and homeowners insurance. A portion of your monthly mortgage payment goes into this account each month, and when taxes and insurance come due, the servicer pays them directly.
Why Do Lenders Require Escrow?
Lenders require escrow because they have a financial interest in the property. If your property taxes go unpaid, the county can place a tax lien on the home — which could supersede the lender's mortgage lien. If insurance lapses and the house burns down, the lender loses their collateral. Escrow protects the lender — and honestly, it protects you too.
How Is the Escrow Payment Calculated?
Simple math: take your annual property tax bill and annual insurance premium, add them together, and divide by 12. That's your monthly escrow payment. Lenders also collect an initial "escrow cushion" of 2–3 months at closing to ensure there's always enough in the account.
Example on a $350,000 Madison home: annual taxes ~$6,000 + annual insurance ~$1,800 = $7,800/year ÷ 12 = $650/month in escrow on top of your principal and interest.
Escrow Shortages and Overages
Your servicer will do an annual escrow analysis. If taxes or insurance went up, you'll have a shortage — either paid in a lump sum or spread over the next 12 months. If you overpaid, you get a refund check.
Related Guide: Understand everything that goes into a monthly mortgage payment in our Complete Home Buying Guide.